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Thursday, September 18, 2014

Treasury extends controversial bank-card deal with Comerica

This story has been updated to include a response from a Treasury spokesman.

The Treasury Department has extended a deal with Comerica Bank to distribute benefits to the elderly and disabled on payment cards despite vowing last year to seek a new vendor for the program, which exposed poor and elderly Americans to fraud.

Treasury’s inspector general plans to review the selection process that led to another contract with Comerica, his counsel said in an email Monday.

Treasury’s announcement that it had signed a new, five-year deal with Dallas-based Comerica to distribute Social Security and disability on bank-issued, taxpayer subsidized cards came in the second-to-last paragraph of a blog entry posted on Friday afternoon. Treasury agreed last year to seek another bank partner after a report by The Center exposed fraud in the program and poor oversight of the contract to provide the cards, known as “Direct Express.”

Under the previous contract, Treasury also paid Comerica an extra $32.5 million for work the bank had promised to do for free. The payments turned a potential loss for the bank of $24.2 million into $8.4 million of profit, according a March report by Inspector General Eric Thorson.

The extra payments might “provide Comerica with a future competitive advantage in the rebid” of the contract, Thorson warned in the report.

Treasury hired Comerica to distribute benefits payments as part of a plan to push people into using electronic payments. The goal was to cut the cost to the government of printing and mailing paper checks. More than 5 million Americans now use the Direct Express card whose fees are lower than those charged by store-front check cashers.

The cards were supposed to help people without bank accounts access their benefits while avoiding high fees charged by check cashers. Aggressive marketing by Treasury and Comerica eventually netted the bank more than a million customers who did not need the cards because they already had bank accounts. The card fees are far higher than direct deposit into a bank account.

Thousands of poor people who never requested the cards received them anyway, likely causing them to pay more fees than necessary, The Center reported. Thousands more allegedly had their Social Security and other benefits illegally rerouted to criminals’ accounts because of weak fraud controls.
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